Bank of England with the biggest hike in 27 years – NFP today

The end of the first week of August seems notable because of the central bank decisions and macroeconomic data, which may affect the world's major currencies, especially the US dollar. Yesterday, the Bank of England raised interest rates by 50 basis points, the largest one-time increase since 1995. However, this historic move was in line with market consensus.

The pound lost but only for a while

The Monetary Policy Committee in the UK voted by an 8-1 majority to raise rates by 50 basis points. The market expected members to vote unanimously. Hence, the result may have been a disappointment.

In the meeting summary, the Committee stated that inflation could continue rising above 13% in the last quarter of this year. At the same time, it is expected to fall to the 2% target by 2024. According to the Committee, the UK recession will begin in the last quarter of 2022 as the GDP outlook deteriorates.

As a first reaction to the weakening growth outlook and one vote against an interest rate hike, the pound was able to react with a fall, losing about 0.5% against the dollar. The GBP/USD fell below 1.2100. This morning, however, it returned to the area of 1.2150.

Data on the US labor market situation is expected

Today, the market seems to be waiting for the US labor market data, especially NFP. The consensus is that the US economy added 250,000 new jobs in July, while the Unemployment rate remained at 3.6%. However, other reports may point to a worsening situation, as U.S. companies announced plans to cut 25,810 jobs in July 2022, up to 36.3% from July 2021. That is the second-highest number of layoffs this year. However, Challenger's report indicates that larger-scale layoffs have not yet begun despite signs that job growth is slowing after a prolonged period of increase.

The US labor market, along with inflation, is entering a dual mandate from the Federal Reserve. The Fed can tighten monetary policy but only until there are signs of deterioration in the labor market. Hence, employment data may come to the fore today. NFP publication is at 2:30 pm today.